Overconfidence and risk perceptions: do they really matter for venture creation decisions?

A cognitive approach for explaining venture creation decisions offers great insights into entrepreneurship research. Examining venture creation decisions from a perspective that considers the cognitive states and perceptions of entrepreneurs further informs the critical role of cognitive constructs in entrepreneurial decision-making. This study provides empirical evidence for a theory of overconfidence that explains why some choose to become entrepreneurs. It explores the interconnections between overconfidence, risk perceptions, and venture creation decisions. More specifically, the growing importance of overconfidence in entrepreneurship encourages an examination of its association with venture creation decisions. Additionally, this research seeks to establish risk perceptions as a mediator for that relationship. Examining these relationships through a psychological perspective contributes to a growing body of entrepreneurial cognition research. This study makes a contribution by providing substantiation for the relationship between overconfidence and venture creation decisions. Equally important, the empirical evidence in this study is the first to provide support for the partially mediating role of risk perceptions. The findings presented here help to provide some insights into understanding why entrepreneurs tend to be more overconfident than non-entrepreneurs, particularly, since overconfidence is positively associated with the decision to start a new venture.